Arizona Health Care Cost Containment System, DAB No. 1569 (1996)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: Arizona Health Care Cost Containment System

DATE: April 9, 1996
Docket No. A-96-24
Decision No. 1569

DECISION

The Arizona Health Care Cost Containment System (AHCCCS)
of the Arizona Department of Human Services appealed a
decision by the Health Care Financing Administration
(HCFA) disallowing $116,071,308 in federal funds claimed
under title XIX of the Social Security Act (Medicaid).
The disallowance involved AHCCCS' claims for expenditures
for nonemergency and emergency medical services provided
to undocumented aliens. The expenditures were made
during the period October 1, 1991 through March 31, 1995.

For the reasons stated below, we conclude that (1)
AHCCCS' costs for emergency medical services for
undocumented aliens in excess of the federal medical
assistance percentage (FMAP) are not allowable Medicaid
expenditures; (2) AHCCCS' costs for nonemergency
services, including prenatal services, for undocumented
aliens are not allowable Medicaid expenditures; (3)
AHCCCS' expenditures are not allowable where AHCCCS did
not file a claim for those expenditures within the
statutory two-year filing period; and (4) the part of
AHCCCS' expenditures for emergency services for which
AHCCCS timely filed a claim may be allowable at the FMAP
rate if AHCCCS can establish that the claim was "based on
actual recorded expenditures." While AHCCCS did not
establish here that its method for calculating its actual
expenditures was reliable, we conclude that, under the
particular circumstances here, HCFA should provide AHCCCS
a time-limited opportunity to show what its actual
expenditures were for covered emergency services.
Accordingly, we uphold the disallowance in full, subject
to reduction to the extent AHCCCS makes such a showing,
in accordance with our decision.

Statutory and Regulatory Background

Title XIX of the Social Security Act (Act) authorizes
federal grants-in-aid to states to help finance state
Medicaid programs. Under title XIX, HCFA will reimburse
a state for a part of the state's costs for providing
medical services to Medicaid-eligible individuals.
HCFA's level of contribution, referred to as the federal
medical assistance percentage or FMAP, is determined by a
formula set forth at section 1905(b) of the Act.

A state that wishes to participate in the Medicaid
program must submit and have approved by the Secretary,
Department of Health and Human Services (the Secretary),
a State plan for medical assistance. Section 1901. A
Medicaid State plan details the manner in which a state
will provide medical services to eligible individuals,
i.e., the categories of people eligible for Medicaid in
that state and the types of services covered by Medicaid
in that state. See section 1902 of the Act.

In order to be allowable, a state's claim for the costs
of medical services must be in accordance with its
approved Medicaid State plan. Such medical assistance
claims are reimbursed at the FMAP. Section 1903(a)(1) of
the Act provides that, for each state with an approved
State plan, the Secretary shall pay--

an amount equal to the Federal medical assistance
percentage . . . of the total amount expended
during such quarter as medical assistance under
the State plan . . . .

Only expenditures for medical services provided to
Medicaid-eligible individuals are allowable Medicaid
costs. Section 1905. In order to be eligible for
Medicaid, a person must meet certain criteria set forth
in title XIX. The eligibility criterion at issue in this
case concerns immigration status. In 1986, Congress
specifically limited general Medicaid eligibility to
citizens of the United States and to aliens who are
either lawful permanent residents or permanently residing
in this country under color of law. Omnibus Budget
Reconciliation Act of 1986 (OBRA 86); Pub. L. No. 99-
509, 9406(a), 100 Stat. 2057 (Oct. 21, 1986). 1/
Congress provided one exception to this limitation: it
required states to furnish Medicaid services which were
necessary for the treatment of emergency medical
conditions to aliens who meet other Medicaid eligibility
requirements but who are not lawfully admitted for
permanent residence or otherwise permanently residing in
the United States under color of law (referred to in this
decision as "undocumented aliens"). The applicable
provisions of title XIX concerning services to
undocumented aliens are as follows.

With respect to federal reimbursement for such services,
section 1903(v)(1) of the Act provides:

Notwithstanding the preceding provisions of this
section, except as provided in paragraph (2), no
payment may be made to a State under this section
for medical assistance furnished to an alien who is
not lawfully admitted for permanent residence or
otherwise permanently residing in the United States
under color of law.

The exception in paragraph (2) of section 1903(v)
provides:

Payment shall be made under this section for care
and services that are furnished to an alien
described in paragraph (1) only if --

(A) such care and services are necessary for
treatment of an emergency medical condition of
the alien, and

(B) such alien otherwise meets the eligibility
requirements for medical assistance under the
State plan approved under this title . . ., and

(C) such care and services are not related to an
organ transplant procedure.

Section 1903(v)(3) defines "emergency medical condition"
as--

. . . a medical condition (including emergency labor
and delivery) manifesting itself by acute symptoms
of sufficient severity (including severe pain) such
that the absence of immediate medical attention
could reasonably be expected to result in --

A state's claim for Medicaid reimbursement must be filed
within a two-year time period. Section 1132(a) of the
Act, as implemented by 45 C.F.R. Part 95, requires that a
claim by a state for reimbursement under title XIX "with
respect to an expenditure made during any calendar
quarter" must be filed within the two-year period which
begins on the first day of the calendar quarter
immediately following such quarter. The claim must be
based on the state's "accounting of actual recorded
expenditures" rather than on "the basis of estimates."
42 C.F.R. 430.30(c)(2).

Facts

As of January 1, 1992, the Arizona Medicaid State plan
provided that, for aliens not lawfully admitted for
permanent residence or otherwise permanently residing in
the United State under color of law (i.e., undocumented
aliens), "coverage must be restricted to certain
emergency services." HCFA Ex. 1, Arizona Medicaid State
Plan, Attachment 2.6-A, at 3. Between October 1, 1991
and March 31, 1995, AHCCCS' FMAP fluctuated. For
example, for fiscal year 1994 it was 65.90 percent and
for fiscal year 1995 it was 66.4 percent. AHCCCS Ex. C
at 2.

In September 1995, HCFA disallowed AHCCCS' claims
totalling $116,071,308 for expenditures made by AHCCCS
between October 1, 1991 and March 31, 1995. 2/ HCFA
disallowed AHCCCS' claims on the following grounds:

(1) AHCCCS' claims for fiscal years 1992 through
1994, totalling $104,623,225, were for expenditures
for nonemergency services to undocumented aliens,
expenditures not covered by the State plan, or
expenditures for emergency services to undocumented
aliens claimed at one hundred percent rather than at
the FMAP;

(2) alternatively, AHCCCS' claims for fiscal year
1992 through 1994 (the $104,623,225 identified in
paragraph (1)) were based on estimates rather than
actual expenditures;

(3) AHCCCS' claims for fiscal year 1992, totalling
$40,462,000 (a part of the $104,623,225 identified
in paragraph (1)), were not submitted within the
two-year time period;

(4) AHCCCS' claims for the first two quarters of
fiscal year 1995, totalling $4,832,085, were for
expenditures for nonemergency services provided to
undocumented aliens;

(5) AHCCCS' claims for the first two quarters of
fiscal year 1995, totalling $6,615,998, were for
expenditures represented as emergency services to
undocumented aliens, but claimed at a rate in excess
of the FMAP.

AHCCCS Ex. E at 4-5.

Analysis

AHCCCS argued that the entire disallowance should be
overturned. Below we discuss AHCCCS's arguments and
explain why they are not persuasive.

AHCCCS claimed reimbursement for the costs of emergency
services provided to undocumented aliens at a rate of 100
percent rather than at its FMAP rate. AHCCCS asserted
that, because immigration policy is the exclusive
province of the federal government, a state cannot
control immigration and must rely on the federal
government to prevent illegal immigration. AHCCCS
therefore concluded that, where the federal government
has both failed to prevent illegal immigration and
required states to provide emergency medical services to
the resulting undocumented alien populations, the federal
government should bear the entire cost of such services.
AHCCCS acknowledged that section 1903(a)(1) provides for
reimbursement of such emergency services only at the FMAP
rate, but argued that this Medicaid requirement should be
disregarded in the context of mandatory emergency
services for undocumented aliens.

As to this issue, the meaning of the law and regulations
is undisputed: a state participating in Medicaid must
provide emergency services to undocumented aliens and a
state may be reimbursed for expenditures for medical
assistance only at the applicable FMAP. Neither HCFA,
nor the Board, has the authority to disregard the law.
The Board is bound by all applicable laws and
regulations. 45 C.F.R. 16.14.

Moreover, relying on arguments similar to the one offered
in this case, border states have sought judicial relief
to require the federal government to assume additional
fiscal responsibility for a range of costs associated
with undocumented aliens. However, the courts have
uniformly concluded that such controversies involve
political questions and are beyond the scope of judicial
review. See Chiles v. U.S., 874 F.Supp. 1334, 1342
(1994), aff'd Chiles v. U.S., 69 F.3d 1094 (11th Cir.
1995) (holding that federal responsibility for Medicaid
services for undocumented aliens was a political question
beyond the jurisdiction of the court); State of Arizona,
et al. v. U.S., et al., CIV-94-0866-PHX-SMM (D. Ariz.
April 18, 1995) (dismissing a suit to compel the federal
government to pay the cost of incarcerating undocumented
alien felons); State of California, et al. v. U.S., et
al., Case No 94-0674-K(CM) (S.D.Cal. February 13, 1995)
(dismissing action seeking, inter alia, federal
compensation for the cost of providing emergency medical
care to undocumented aliens).

Accordingly, we conclude that HCFA correctly disallowed
the part of AHCCCS' claim in excess of the FMAP rate for
expenditures for emergency services to undocumented
aliens.

AHCCCS argued that its costs for nonemergency prenatal
care to undocumented alien women were allowable Medicaid
expenditures. 3/ AHCCCS did not articulate any
construction of any specific provision of title XIX which
would allow Medicaid reimbursement for these
expenditures. Instead, AHCCCS relied solely on the
reasoning in Lewis, et al. v. Grinker, et al., 965 F.2d
1206 (2d Cir. 1992) (referred to a Lewis V), arguing that
the Board should follow that decision. 4/

An analysis of the allowability of expenditures for
prenatal services to undocumented aliens depends on
whether such services are viewed as services to the
pregnant woman or as services to the unborn child.

With respect to the eligibility of an undocumented alien
woman, the plain language of section 1903(v) precludes
reimbursement, as acknowledged by the court in Lewis V.
Section 1903(v)(1) provides that "no payment may be made
to a State under this section for medical assistance
furnished" to an undocumented alien except as provided in
section 1903(v)(2). Section 1903(v)(2) provides that
payment shall be made "only if . . . such care and
services are necessary for the treatment of an emergency
medical condition of the alien." Section 1903(v)(3)
defines "emergency medical condition" as "including
emergency labor and delivery," thereby indicating that
routine prenatal care is not considered an emergency
medical service.

Based on this language, HCFA adopted regulations at 42
C.F.R. 440.255 that are consistent with its
construction of section 1903(v) as precluding prenatal
services to women who are undocumented aliens. 5/
Section 440.255(a) of 42 C.F.R. provides that Medicaid
reimbursement is available for services provided to
aliens which are necessary to treat an emergency medical
condition as defined in paragraphs (b)(1) and (c) or
services for pregnant women as described in paragraph
(b)(2). Paragraphs (b)(1) and (2) authorize Medicaid
reimbursement for emergency medical services and prenatal
care, labor and delivery, and postpartum care for certain
categories of aliens other than undocumented aliens. In
contrast, as to undocumented aliens, paragraph (c)
authorizes reimbursement only for emergency services.
Paragraph (c)(1) tracks section 1903(v)(3) of the Act by
including "emergency labor and delivery" as an emergency
medical condition while being silent about prenatal
services.

In the preamble to the rules, HCFA specifically addressed
whether an undocumented alien woman could also be
considered a "qualified pregnant woman" for purposes of
receiving prenatal services under section 1905(n)(1) of
the Act. HCFA wrote:

Comment: Several commenters believe that pregnant
women in the population covered by section
1903(v)(2) of the Act should receive the prenatal
and postpartum services provided to eligible
pregnant women under other sections of title XIX.
The commenters expressed the belief that the
services necessary to treat an emergency medical
condition of an alien who is not a lawful permanent
resident, PRUCOL [permanently residing under color
of law], or legalized under IRCA [the Immigration
Reform and Control Act of 1986] includes all of the
prenatal and postpartum services provided to
eligible pregnant women.

Response: As discussed above, Congress specifically
limited the services available to a pregnant woman
to emergency labor and delivery (including emergency
postpartum care). In doing so, Congress exempted
these services from the amount, duration, and scope
provisions of the Act by amending section 1902.
Section 1903(v)(2) of the Act authorizes FFP
[federal financial participation] only for services
provided to an alien with an emergency medical
condition. The commenters' reliance on section
1905(n)(1) of the Act is misplaced. The language of
that section says that a qualified pregnant woman is
one who would be eligible for AFDC if her child were
born and living with her. The individuals covered
by section 1903(v)(2) of the Act are not eligible
for and cannot receive AFDC because they are neither
lawful permanent residents nor PRUCOL.

55 Fed. Reg. 36,813, at 36,816 (Sept. 7, 1990).

HCFAþs regulations do not directly address the issue of
whether federal funding is available for prenatal
services on the theory that the services are provided to
the unborn child, rather than to the mother. In the
preamble, however, HCFA gave notice that, under its
construction of section 1903(v)(2) and other provisions
of the Act, expenditures for prenatal services could not
be claimed as services to an unborn child. HCFA wrote:

Further, we interpret title XIX to provide medical
services which benefit an unborn child exclusively
through the pregnant woman. We previously permitted
States to provide Medicaid eligibility to unborn
children as children under 21 pursuant to section
1905(a)(i) of the Act. In 1985, this ceased to be a
State plan option, based on our interpretation of
provisions of several Congressional enactments . . .
. These enactments created and expanded Medicaid
coverage for pregnant women and OBRA 81 precluded
AFDC cash benefits for the unborn. We rely on these
provisions, as well as the explicit provision for
labor and delivery room services as emergency
services available to non-PRUCOL pregnant women in
OBRA 86, for our interpretation that an unborn child
does not have a separate status as an individual
eligible for medical assistance.

Id.

AHCCCS did not deny that it had timely notice of HCFAþs
interpretation of the Act. In fact, the inferences to be
drawn from the record result in the opposite conclusion:
AHCCCS' claim is an after-the-fact attempt to recover
costs that it did not consider allowable at the time the
bulk of the costs were incurred. For example, as of
January 1, 1992 the Arizona State plan precluded such
costs by providing that, for undocumented aliens,
"coverage must be restricted to certain emergency
services." 6/ HCFA Ex. 1, at 3. Further, AHCCCS made no
attempt to amend its State plan to include prenatal
services to undocumented women or to unborn children.

AHCCCS argued nonetheless that its expenditures for
prenatal care to undocumented aliens should be considered
allowable, based on Lewis V. In the Lewis V decision,
the United States Court of Appeals for the Second Circuit
held that section 1903(v) did not prevent otherwise
eligible undocumented alien women from receiving
Medicaid-sponsored prenatal care. The court reasoned
that, while the plain language of section 1903(v)
precludes Medicaid coverage of such services, Congress
did not intend to bar undocumented alien women from
access to Medicaid-funded prenatal care. In reaching
this conclusion, the court first decided that Congress
did not realize that the effect of the plain language of
section 1903(v) would be to deny prenatal care to
undocumented alien women. 7/ Having concluded that
Congress did not know that it was denying prenatal care
to undocumented alien women, the court then concluded
that such a denial conflicted with Congress' intent
because the OBRA 86 exclusion was part of a budget
reconciliation act in which "Congress' basic purpose was
to `achieve net expenditure reductions' while
`achiev[ing] certain program improvements.'" Id. at 1219
quoting H.R. Rep. No. 727, 99th Cong., 2nd Sess. 68
(1986), reprinted in 1986 U.S.C.C.A.N. 3658. The court
found that, since providing prenatal care is cost
effective, denying such care to undocumented alien women
"undermines the clearly expressed Congressional purpose
of curbing expenditures." Id. at 1219. HCFA did not
appeal the courtþs decision, but has declined to apply it
outside of the Second Circuit.

AHCCCS offered several arguments as to why the Board
should reject HCFA's construction of the Act and adopt
the result in Lewis V. AHCCCS argued that the better
public policy would be to follow Lewis V because it is
more cost effective to provide prenatal care than to
treat the consequences of lack of prenatal care in
children who may be born in the United States, thereby
becoming citizens. AHCCCS also argued that HCFA's
refusal to follow Lewis V was unfair because it resulted
the states in the Second Circuit being reimbursed for
these services while other states were not.

We conclude, for the following reasons, that HCFA was not
unreasonable in declining to extend the effect of Lewis V
beyond the Second Circuit or in disallowing AHCCCS' claim
made in reliance upon that decision:

o Lewis V is premised on the court's finding that
Congress did not understand the effect of the plain
language of section 1903(v) and that the plain
language was contrary to congressional intent.
Section 1903(v) was enacted in 1986. At the very
latest, by 1990 Congress had notice of HCFA's
construction of the effect of section 1903(v). If,
as determined by Lewis V, the effect of section
1903(v) was contrary to congressional intent,
Congress has had ample time to correct its
"mistake." The fact that Congress has failed to act
leads us to conclude that the court misread
congressional intent.

o While the court in Lewis V discussed several
possible statutory bases for Medicaid-funded
prenatal services to undocumented women, it never
articulated which section of title XIX authorizes
such funding. This failure is a serious weakness in
the decision since there must be a statutory basis
for Medicaid reimbursement.

o In concluding that the plain language of section
1903(v) could be ignored because it conflicted with
the statutory purposes, the court relied on the
general purpose of OBRA 86, a reconciliation bill,
rather than examining the purpose of section
1903(v), an individual substantive provision
appended to the bill. Such substantive provisions
do not necessarily have to be revenue neutral or
reducing.

o The court's conclusion was based on an opinion that
providing prenatal care is cost effective. This
does not mean that HCFA's interpretation would
necessarily increase Medicaid costs. HCFA, which is
the agency responsible for administering the
program, contended in the case that such a ban could
reduce costs by encouraging some number of
undocumented alien women to return to their own
country for prenatal care and the birth of their
child.

o The court concluded only that Medicaid-funded
prenatal services for undocumented alien women who
met other Medicaid eligibility requirements were not
precluded by section 1903(v). It did not hold that
such undocumented alien women were actually entitled
to such services. Implicit in the court's
conclusion is a finding that such prenatal services
are an optional service which a state may choose to
include in its State plan. Expenditures for such
services must be made in accordance with a State
plan in order to be allowable. Section 1903(a) of
the Act. As noted above, the Arizona State plan not
only did not contain a provision for such prenatal
services, but also the plan (and state law)
expressly limited services to undocumented aliens to
emergency services. Contrary to what AHCCCS argued,
State plan provisions are not mere technicalities
but are statutory preconditions for federal funding.
Therefore, even if Lewis V were persuasive, AHCCCS
may not claim reimbursement for such prenatal
services because Arizona never sought to include
them in its State plan.

Further, the fact that only states in the Second Circuit
are reimbursed for prenatal services to undocumented
alien women is a consequence of the structure of the
federal court system. This disparity of treatment is not
grounds, in and of itself, to extend the effect of a
judicial decision which HCFA regards as erroneous.

We also reject AHCCCSþ argument that the Immigration
Reform and Control Act of 1986 (IRCA), Pub. L. No. 99-
603, 100 Stat. 3359 (1986), which expressly provided
prenatal services to certain aliens, could be read in
support of the Lewis V result and showed that Congress
did not mean to deny prenatal care to undocumented
aliens. As HCFA noted, the IRCA provision can also be
construed to show that Congress understood how to provide
continued access to prenatal care to aliens. Therefore,
Congress' failure to provide such access for undocumented
alien women supports HCFA's position that by enacting
section 1903(v) Congress intended to deny undocumented
alien women Medicaid-funded prenatal care.

Finally, we reject AHCCCSþ argument that we should allow
its claims because HCFA's decision to limit undocumented
aliens to emergency care was related to Congress'
expectation that IRCA and the ban on title XIX services
to undocumented aliens would stop the immigration of
undocumented aliens, and this expectation has not been
fulfilled. HCFA is responsible for administering the law
as passed by Congress. HCFA has administered section
1903(v) pursuant to its longstanding construction of
congressional intent. As discussed in this decision,
HCFA's construction is reasonable, and AHCCCS was given
adequate and timely notice of that construction. Whether
HCFA's construction should now be abandoned because of
events subsequent to 1986 is a decision for Congress or
HCFA, not the Board.

(3) Whether AHCCCS' claim was filed within time
period set forth in section 1132(a) of the Act

HCFA disallowed $40,462,000 of AHCCCS' claim for fiscal
year 1992 expenditures on the grounds that the claim was
not filed within the two-year time period prescribed by
section 1132(a) of the Act. AHCCCS claimed these costs
as prior period expenditures on its Quarterly Medicaid
Statement of Expenditures for Medical Assistance Program
(Form HCFA-64) which it filed on October 31, 1994 for the
quarter ending September 30, 1994. AHCCCS Ex. D at 3.

Section 1132(a) provides that claims for Medicaid
expenditures must be filed--

within the two-year period (in such form and manner
as the Secretary shall by regulations prescribe)
which begins on the first day of the calendar
quarter immediately following such calendar quarter;
and payment shall not be made under the Act on
account of any such expenditure if claim therefore
is not made within such two-year period . . . .

AHCCCS argued that its filing of these claims was timely.
AHCCCS reasoned that--

. . . the agency has thirty (30) days in which to
file its prior quarter report. Thus, the September
30, 1994 report was not technically due until
October 31, 1994. It is the position of AHCCCS that
the two-year limitation does not expire until the
report was actually due. Because the September 30,
1992 claims were properly included in the September
30, 1994 report, which itself was timely, the 1992
claims must also be regarded as timely.

AHCCCS Brief at 22.

The Board has previously rejected the argument that the
section 1132(a) time period includes the time allowance
for the filing a quarterly report for current
expenditures. In Arizona v. Dept. of Economic Security,
DAB No. 386 (1983), the Board reasoned that the time
allowance for filing a quarterly report reflects the fact
that states need a short period after the close of a
quarter to assemble information for their claims for that
quarter. However, the Board concluded that the fact that
states are allowed a period of time to claim current
quarter expenditures "does not mean the State can ignore
the specific requirement that no claim can be submitted
later than 2 years after the quarter--i.e., an earlier,
different quarter--in which an expenditure was incurred."
Id. at 4. Similarly, in Illinois Dept. of Public Aid,
DAB No. 440 (1983), the Board held that section 1132(a)
and the implementing regulations required actual filing
of a claim within the two-year period and that this
period was not extended by the filing allowance for a
quarterly report for current expenditures.

Finally, we reject AHCCCS' argument that the Board should
excuse AHCCCS' late claiming of these costs on the basis
of good cause. The Board has previously held that it has
no authority to ignore section 1132(a) or reverse a
timely claims disallowance on general equitable grounds.
New Jersey Dept. of Human Services, DAB No. 1142 (1990).
Further, while section 1132(a) does contain a good cause
exception, that exception is not available in this
proceeding. Under the process established by the
Secretary for obtaining a good cause waiver, such waivers
must be requested from the Secretary, not the Board. 8/
45 C.F.R. 95.25 - 95.34. There is nothing in the
record to indicate that AHCCCS ever requested a good
cause waiver pursuant to this process.

4. Whether AHCCCS established that its claims were
based on actual expenditures rather than estimates

HCFA disallowed $104,623,225 of AHCCCS' claims for fiscal
years 1992 through 1994 because HCFA concluded that the
claims were based on estimates rather than on actual
expenditures. For this part of the disallowance, HCFA
relied on 42 C.F.R. 430.30(c), which provides:

(c) Expenditure reports. (1) The State must
submit Form HCFA-64 . . . . to the central office .
. . not later than 30 days after the end of each
quarter.
(2) This report is the State's accounting of
actual recorded expenditures. The disposition of
Federal funds may not be reported on the basis of
estimates.

AHCCCS argued that, while 42 C.F.R. 430.30(c)(2) sets
forth the requirements for expenditure reports, it did
not require HCFA to disallow the entire $104,623,225.
AHCCCS explained that this part of its claim was not
based solely on actual expenditures because prior to July
1, 1993, undocumented aliens were enrolled in prepaid
capitated health plans rather than receiving services on
a fee-for-service basis. Between July and December 1993,
AHCCCS disenrolled these undocumented aliens from its
health plans pursuant to Arizona legislation limiting
eligibility of undocumented aliens to emergency services
on a fee-for-service basis. A.R.S. 36-2905.05.
Because the undocumented aliens were enrolled in
capitated health plans prior to that time, the data as to
the aliens was not separately identifiable. Arizona
described the methodology it used to establish its claim
for these services as follows:

[T]he total annual MN/MI (Medically Needy/Medically
Indigent) expenditures including eligible Low Income
Children (ELIC) was obtained from the AHCCCS monthly
financial reports. This figure was multiplied by
.30 (the estimated percentage of undocumented aliens
on MN/MI) to obtain the total cost of all MN/MI
services provided to all undocumented aliens.
AHCCCS then estimated that 23% of the 30% of
undocumented aliens on MN/MI were eligible for
coverage under Title XIX, based upon an MN/MI study
conducted April 1992. Multiplying the former figure
by this percentage yielded the figure representing
the total cost of all MN/MI services provided to all
undocumented aliens eligible for Title XIX. AHCCCS
management reported that an estimated 80% of the
total cost of all MN/MI services provided to all
MN/MI eligibles is for emergency services.
Multiplying by this percentage, then, yielded the
total cost claimed for providing emergency services
to Title XIX eligible undocumented aliens.

AHCCCS Brief at 24.

We first note that there is conflicting information in
the record concerning the nature of expenditures for this
component of the disallowance. 9/ While the preceding
methodology would result in a claim for only emergency
services expenditures, HCFA described this claim as
including expenditures for emergency and nonemergency
services. Given this apparent conflict in the record, we
make the following ruling. To the extent that the claim
for $104,623,225 represents expenditures timely claimed
at the FMAP for emergency services to undocumented aliens
who were eligible for Medicaid at the time the services
were rendered, we uphold the disallowance in full subject
to reduction as described below. As explained below, our
reason for upholding the disallowance is that the
methodology presented by AHCCCS as the basis for this
claim cannot be considered to be an "accounting of actual
recorded expenditures" as required by 42 C.F.R.
430.30(c)(2). However, also as explained below, we
conclude that in the context of this case AHCCCS should
have a further time-limited opportunity to appropriately
document these expenditures pursuant to section
430.30(c)(2).

To the extent the claim for $104,623,225 represents
expenditures for nonemergency services to undocumented
aliens or expenditures for emergency services claimed in
excess of the FMAP or expenditures which were not timely
claimed, we uphold the disallowance without
qualification. Nonemergency services, claims in excess
of the FMAP, and untimely claims are not allowable even
if AHCCCS had documented the expenditures properly. HCFA
should not be required to cooperate with AHCCCS to
establish a methodology to ascertain unallowable
expenditures.

Below we first discuss 42 C.F.R. 430.30(c)(2) and why
the information in the record does not satisfy its
requirements. We then discuss why we conclude AHCCCS
should have a further opportunity to document its costs.

The requirements of section 430.30(c)(2) should be read
in conjunction with section 1903(d) of the Act. Section
1903(a)(1) of the Act provides that the Secretary shall
pay a state "an amount equal to the Federal medical
assistance percentage . . . of the total amount expended
during such quarter as medical assistance under the State
plan . . . ." The process by which this occurs is set
forth in the Act and the implementing regulations.
Section 1903(d)(1) provides that--

Prior to the beginning of each quarter, the
Secretary shall estimate the amount to which a State
will be entitled under subsection (a) and (b) for
such quarter, such estimates being based on (A) a
report filed by the State containing its estimate of
the total sum to be expended in such quarter . . .

(Emphasis added.) Pursuant to this estimate, the
Secretary then makes a payment. Section 1903(d)(2)(A)
provides:

The Secretary shall then pay to the State . . . the
amount so estimated, reduced or increased to the
extent of any overpayment or underpayment which the
Secretary determines was made under this section to
such State for any prior quarter . . . .

A state's estimate of its future expenditures is reported
on a Form HCFA-25. 42 C.F.R 430.30(b). The
overpayments or underpayments which are the basis for
reducing or increasing an estimated payment are reported
on a Form HCFA-64. This report constitutes a state's
"accounting of actual recorded expenditures" which
reconciles actual expenditures with the amount the state
estimated it would spend during the quarter in question.
42 C.F.R. 430.30(c)(2). It is the figures in this
report that may not be based on "estimates."

In New York State Dept. of Social Services, DAB No. 1134
(1990), the Board considered what constitutes an
"estimate" for purposes of section 430.30(c)(2). In that
case, HCFA argued that any claim based on statistical
sampling necessarily constituted an estimate and could
not be reimbursed. The Board disagreed and held that
section 430.30(c)(2) should be construed to use the term
"estimate" in the same sense as section 1903(d)(1) of the
Act. That section, the Board determined, used the term
to mean the amount the state projected it would spend in
the coming quarter. It did not use the term to mean a
scientifically valid statistical extrapolation of what
was actually expended, as the term "estimate" is used in
the field of statistics. The Board also concluded that
HCFA's interpretation failed to take account of the
context in which the term appeared in the regulation.
Since the prior sentence requires that a state's report
on Form HCFA-64 be an accounting of actual expenditures,
"a better reading of the sentence in question may be that
claims shall not be based on other than actual
expenditures." DAB No. 1134, at 5. Because the claims
in question in that case represented "a statistical
estimate of the amount of actual MA payments which were
incurred on behalf of individuals who were eligible for
Medicaid," the Board determined that the claims were
"`based on' actual expenditures" and complied with
section 430.30(c)(2). 10/ Id.

DAB No. 1134 held that in some circumstances a state may
claim Medicaid reimbursement pursuant to a statistical
projection which is based on actual expenditures. For
the following reasons, however, we conclude that AHCCCS
has failed in this record to establish that its claim had
any such statistical integrity. First, AHCCCS'
description of its methodology is so general that it is
impossible to evaluate the integrity of that methodology.
For example, it is not clear from the information in the
record what group of people AHCCCS is referring to as
Medically Needy/Medically Indigent and eligible Low
Income Children; how AHCCCS calculated its "total annual
expenditures" for that group; how AHCCCS determined that
the undocumented aliens in that group for whom it claimed
reimbursement were eligible for Medicaid; or whether
AHCCCS used the definition of "emergency medical
condition" set forth in section 1903(v)(3) in determining
the percent of emergency services expenditures. 11/
Second, AHCCCS provided no figures or calculations
pursuant to which its representations could be
interpreted or evaluated. Therefore, we conclude that
AHCCCS failed to establish in the record before us that
its claim was based on a statistically valid process for
determining actual expenditures for providing emergency
services to Medicaid-eligible undocumented aliens.

On the other hand, HCFA did not dispute that AHCCCS made
expenditures during this time period for emergency
services to Medicaid-eligible undocumented aliens which
have not been reimbursed. As Arizona's Medicaid program,
AHCCCS operates as a demonstration project pursuant to a
waiver granted by the Secretary under section 1115(a).
Pursuant to that waiver, AHCCCS' almost exclusive method
of delivering services is by enrolling Medicaid
recipients in capitated health plans. As members of a
plan, recipients receive a range of services (emergency
and nonemergency) in exchange for capitated payments made
by AHCCCS. Consequently "[i]n place of the usual open-
ended Federal matching funds for service expenditures,
AHCCCS receives a Federal per capita payment for each
eligible beneficiary. The amount of the payment is
negotiated with HCFA in advance." Congressional Research
Service for the House Comm. on Energy and Commerce, 103d
Congress, 1st Sess., Medicaid Source Book: Background
Data and Analysis (Comm. Print 1993) at 1021.

AHCCCS represented that its difficulty in producing
actual expenditures for emergency services resulted from
the capitated nature of its program and the fact that
undocumented aliens were not separately identifiable in
the MI/MN population. Identifying the costs of emergency
services attributable to payment made at a capitated rate
would appear to involve some process of assigning a
representative value to emergency services which would
then be applied to capitated rates paid for Medicaid-
eligible undocumented aliens. This process necessarily
involves relying on data other than the payment amounts
available in systems based on fee-for-service
reimbursement.

Given the fact that the Secretary has approved AHCCCS'
capitated system and given the fact that Congress has
mandated emergency services for undocumented aliens, we
conclude that some allowance should be accorded AHCCCS in
establishing the amount of its capitation payments which
was attributable to costs for emergency services and the
population to which these services were provided. By
this we mean that the fact that AHCCCS must rely on some
method other than a strict accounting of actual
expenditures for emergency services does not, in and of
itself, mean that AHCCCS' claim is impermissibly based on
an "estimate." On the other hand, AHCCCS has the burden
of documenting that its calculations reliably establish
the amount of its actual, allowable expenditures.

Therefore, we uphold this part of the disallowance,
subject to reduction to the extent AHCCCS fairly and
reliably establishes, in accordance with our decision,
what AHCCCS' actual expenditures for emergency services
were during this time period. We urge the parties to
consult about what information HCFA would need to
establish the actual expenditures.

Conclusion

For the reasons discussed above, we conclude that (1)
AHCCCS' costs for emergency medical services for
undocumented aliens in excess of the federal medical
assistance percentage (FMAP) are not allowable Medicaid
expenditures; (2) AHCCCS' costs for nonemergency
services, including prenatal services, for undocumented
aliens are not allowable Medicaid expenditures; (3)
AHCCCS' expenditures are not allowable where AHCCCS did
not file a claim for those expenditures within the
statutory two-year filing period; and (4) the part of
AHCCCS' expenditures for emergency services for which
AHCCCS timely filed a claim may be allowable at the FMAP
rate if AHCCCS can establish that the claim was "based on
actual recorded expenditures." While AHCCCS did not
establish here that its method for calculating its actual
expenditures was reliable, we conclude that, under the
particular circumstances here, HCFA should provide AHCCCS
a time-limited opportunity to show what its actual
expenditures were for covered emergency services.

Accordingly, we uphold the disallowance in full, subject
to reduction to the extent AHCCCS makes such a showing.
The showing should be made within 30 days after AHCCCS
receives our decision, or within such longer period as
HCFA allows. If AHCCCS is dissatisfied with HCFA's
determination on this limited issue, AHCCCS may appeal
that determination to the Board within 30 days of
receiving it.

__________________________
Donald F. Garrett

__________________________
Norval D. (John) Settle

__________________________
Judith A. Ballard
Presiding Board Member

1.
Prior to 1986, the only specific reference in title XIX
to immigration status as a criterion for Medicaid
eligibility was found at 1902(b)(3). It provides that a
State plan may not "impose[], as a condition of
eligibility for medical assistance under the plan . . .
any citizenship requirement which excludes any citizen of
the United States." In 1973, the Secretary adopted a
regulation which precluded reimbursement for services to
undocumented aliens. The exclusion was originally set
forth in 45 C.F.R. 248.50. In 1978, the exclusion was
moved to 42 C.F.R. 435.402. The Secretary's authority
under title XIX to adopt a regulation excluding
undocumented aliens
was upheld by the Board in California Dept. of Health
Services, DAB No. 1095 (1989) and in the subsequent
appeal of that decision in Coye v. U.S. Dept. of Health
and Human Services, et al., 973 F.2d 789 (9th Cir. 1992).
However, in Lewis v. Gross, 663 F.Supp 1164 (E.D.N.Y.
1986), a federal district court declared this regulation
invalid. In OBRA 86, which was enacted immediately after
the Lewis v. Gross decision, Congress enacted section
1903(v), thereby expressly including in title XIX the
Secretary's exclusion of undocumented aliens.

2.
On the quarterly expenditure report for the quarter
ending September 1994, AHCCCS claimed $104,623,225. This
amount was composed of $3,229,725 in current quarter
expenditures and $101,393,500 in prior period
expenditures. The prior period for which these claims
were made dated back to the quarter beginning October 1,
1991. For the quarter ending December 31, 1994, AHCCCS
claimed $5,723,368 in current quarter expenditures. For
the quarter ending March 31, 1995, AHCCCS claimed
$5,724,715 in current quarter expenditures.

3.
We note that HCFA's disallowance letter described this
part of the disallowed costs as expenditures for
nonemergency services. The letter did not indicate what
proportion of the costs were for prenatal services as
opposed to other nonemergency services. However, the
only arguments that AHCCCS offered for the allowability
of the nonemergency services concerned prenatal services
for undocumented alien women.

This issue presents a different set of considerations
than the preceding issue involving the FMAP. As to the
FMAP issue, AHCCCS conceded that title XIX medical
assistance is reimbursed at the FMAP rate but argued that
the title XIX requirements should be disregarded. In
contrast, for reimbursement of prenatal services, AHCCCS
argued that title XIX could be and should be interpreted
to reimburse states for the costs of prenatal services to
undocumented alien women. Therefore, for prenatal
services, AHCCCS disputed HCFA's construction of title
XIX.

4.
Lewis V is the most recent in a series of decisions on
Medicaid services for undocumented aliens. In Lewis v.
Gross, 663 F.Supp. 1164 (E.D.N.Y. 1986) (Lewis I), the
district court held that Congress never intended to
prescribe an alienage requirement for title XIX
eligibility and that HCFA's regulation excluding
undocumented aliens from Medicaid eligibility was
invalid. Immediately after Lewis I, Congress passed the
OBRA 86 undocumented alien exclusion provision. In Lewis
v. Grinker, 660 F.Supp 169 (E.D.N.Y. 1987) (Lewis II),
the district court refused to apply the OBRA 86 exclusion
retroactively to the class of undocumented aliens before
the court. In Lewis v. Grinker, Medicare & Medicaid
Guide (CCH) at 36,213 (E.D.N.Y., Mar. 5, 1987) (No. CV-
79-1740) (Lewis III), the district court issued a
preliminary injunction enjoining the practice of denying
prenatal care to undocumented aliens. The district court
found that HCFA's longstanding interpretation of the
phrase "individual under the age of 21" included the
unborn and that section 1905(a)(i) extended title XIX
coverage to all children under the age of 21 regardless
of the status of the mother. In Lewis v. Grinker, 794
F.Supp. 1193 (E.D.N.Y. 1991) (Lewis IV), the district
court entered a permanent injunction. In Lewis IV, the
court concurred with Secretary's position that section
1905(a)(i) did not entitle the "unborn" to title XIX
benefits in their own right, but decided that
undocumented alien women fell in the class of "qualified
pregnant women" under 1902(a)(10)(A)(i)(III) because the
pregnant woman provision requires that the fetus be
deemed born, and the fetus, if born, would be a citizen.
In Lewis V, the Second Circuit affirmed the entry of a
permanent injunction pursuant to an analysis, discussed
in the text above, which was different from the two
analyses previously advanced by the district court.

5.
As to services for undocumented aliens, the text of 42
C.F.R. 440.255 provides--

(a) FFP for services. FFP is available for
services provided to aliens described in this
section which are necessary to treat an emergency
medical condition as defined in paragraphs (b)(1)
and (c) . . . .
* * *
(c) Effective January 1, 1987, aliens who are not
lawfully admitted for permanent residence in the
United States or permanently residing in the United
States under the color of law must receive the
services necessary to treat the condition defined in
paragraph (1) of this section if--
(1) the alien has, after sudden onset, a medical
condition (including emergency labor and delivery)
manifesting itself by acute symptoms of sufficient
severity (including severe pain) such that the
absence of immediate medical attention could
reasonably be expected to result in:
(i) Placing the patient's health in serious
jeopardy;
(ii) Serious impairment to bodily functions; or
(iii) Serious dysfunction of any bodily organ or
part, and
(2) The alien otherwise meets the requirements in
435.406(c) . . . .

6.
We note also that the Arizona legislature has codified
both the section 1903(v) exclusion of undocumented aliens
from receipt of nonemergency services and the section
1903(v) entitlement to emergency services. A.R.S. 36-
2905.5 provides that, as of July 1, 1993, (1) only people
who meet the title XIX alienage requirements can qualify
for state assisted care for the medically needy and (2) a
person who, but for the alienage requirements, qualifies
as medically needy under A.R.S. 36-2905A, is entitled
to state assisted services to treat an emergency medical
condition as defined in 1903(v) of the Act.

7.
The court reasoned that: (1) The Medicaid statute is
one of "unparalleled complexity . . . . Thus, we are
always mindful of the possibility that Congress may have
failed to perceive a particular consequence of a blanket
change in this complex statutory scheme"; (2) the
legislative history indicates that Congress did not
consider the consequence of the OBRA 86 exclusion on
qualified pregnant women who were undocumented; and (3)
even if one assumes Congress realized OBRA 86 meant that
undocumented alien women would no longer be considered
qualified pregnant women, it is not clear that Congress
realized that, under HCFA's revised policies, states
could no longer choose to extend prenatal care to fetuses
regardless of the immigration status of the mother. Id.
at 1216-1217. The court also noted that HCFA's
construction of the effect of section 1903(v) resulted in
"a potential constitutional infirmity" because children
of undocumented aliens, upon birth, must apply for
Medicaid while children of women who were eligible for
Medicaid-funded prenatal care are automatically eligible.
Id. at 1217.

8.
In any event, we note that the Secretary has defined
good cause at 45 C.F.R. 95.22 as "lateness due to
circumstances beyond the State's control." AHCCCS
represented that its delayed filing was related to the
fact that it "hoped" that HCFA would "voluntarily apply"
the Lewis V ruling "in a consistent and uniform manner."
AHCCCS Brief at 22. AHCCCS argued that the "uncertainty
following the Lewis decision, HCFA's subsequent decision
not to acquiesce in the holding and the public
significance of the underlying issues all justify a
relaxed reading" of the filing requirement. Id. While
the examples of good cause circumstances listed in the
regulation include "documented action or inaction of the
Federal government," there appears to be no such action
or inaction in this case. HCFA clearly stated in 1990
that prenatal services to undocumented women were not
allowable costs. There is nothing in the record to
indicate that AHCCCS' professed "hope" that HCFA would
voluntarily extend the Lewis V decision (issued in 1992)
was reasonable or that HCFA's "action or inaction" on
this topic caused AHCCCS to delay filing until 1994.

9.
In its initial deferral letter, HCFA described these
costs as expenditures for nonemergency services to
undocumented aliens. AHCCCS Ex. A. The deferral letter
also says that "[t]he amounts claimed are not based on an
accumulation of actual individual claims for service to
individuals, but rather on estimates using percentages of
undocumented aliens." Id. at 1. In its response to the
deferral letter, AHCCCS described these costs as
expenditures "to pay for services provided under the
Federal and State Emergencies Services programs" to
undocumented aliens. AHCCCS Ex. C at 1. The letter goes
on to discuss AHCCCS' position that the federal
government should pay for 100% of emergency services to
undocumented aliens. The letter does not acknowledge
HCFA's characterization of these costs as expenditures
for nonemergency services or HCFA's assertion that the
claim is impermissibly based on estimates. In its
disallowance letter, HCFA expands its description of
these costs to "expenditures for nonemergency services
provided to undocumented aliens, expenditures not covered
by the State plan, or expenditures represented as covered
emergency services to undocumented aliens but claimed in
excess of the FMAP." AHCCCS Ex. E at 4. In its brief,
AHCCCS again describes these costs as "expenditures for
medical services provided under the Federal and State
Emergency Services Program." AHCCCS Brief at 1.
Finally, the methodology described by AHCCCS in its brief
for determining the amount of the claim indicates that
the claim includes only expenditures for emergency
services.

10.
In DAB No. 1134, the Board assumed that New York's
representations concerning its methodology were correct.
The decision acknowledged that HCFA was entitled to test
those representations and the state's methodology.

11. We note that AHCCCS said that 80 percent of the
"total cost of all MN/MI service provided to all MN/MI
eligible is for emergency services." AHCCCS Brief at 24.
Since a capitated system such as AHCCCS is designed to
provide routine and preventive care and to obviate the
need for emergency services, it is not apparent why such
a high percent of AHCCCS' expenditures would be devoted
to emergency care.